Ray Dalio: Gold is the most mature currency; having zero or low allocation is a strategic mistake
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Ray Dalio: Gold is the most mature currency; having zero or low allocation is a strategic mistake
Gold is a more fundamental risk-free asset compared to any fiat currency debt.
Navigating Web3 tides with focused insightsAuthor: Ray Dalio
Translated by: Jinshi Data
Recently, Ray Dalio, founder of Bridgewater Associates, shared his views on gold via social media. Below is a summary of his perspectives.
The Fundamental Logic of Gold
My (i.e., Dalio's) way of viewing gold and its price seems different from most people. The common misconception lies in treating gold as a metal rather than the most mature form of money, while treating fiat currency as real money instead of debt. They believe central banks will infinitely create fiat money to prevent debt defaults. This perception stems from the fact that most people have never lived in a gold standard era nor studied the recurring historical cycles of debt, gold, and money.
To me, gold is money—it has purchasing power just like cash, with a long-term real return of about 1.2%, since it doesn't generate income by itself. But like cash, its purchasing power can be used to create lending, enabling people to build profitable businesses held through stocks. If those stocks are high quality and generate sufficient cash flow to repay loans, then stocks are certainly the better choice. However, when they fail to repay debts and central banks resort to printing money to prevent default, non-fiat money (gold) reveals its value.
Essentially, gold is money similar to cash, but the key difference is that it cannot be printed or devalued. When market bubbles burst or national credit systems collapse (e.g., during conflicts), it becomes an excellent hedge against stocks and bonds.
More accurately, I view gold as the most robust foundational investment, not a commodity. It is money like cash, but unlike credit instruments that create debt, it settles transactions directly—enabling payment without creating debt and allowing direct debt settlement.
For some time now, the supply-demand dynamics between debt-based money and gold-backed money have undergone a fundamental shift. Given their respective supply-demand ratios and potential bubble sizes, I have chosen to firmly maintain my gold position within my portfolio. Investors hesitating between "zero allocation" and "underweight allocation" are likely making a strategic mistake.
Are Silver, Platinum, or Inflation-Protected Bonds Better Alternatives?
While other metals also offer inflation hedging capabilities, gold holds a unique position in investor and central bank asset allocations: it is the most widely accepted medium of non-fiat exchange and store of wealth, effectively diversifying risks across other assets and currencies.
Unlike fiat currency debt, gold carries no inherent credit risk or depreciation risk—in fact, gold performs best precisely when other assets perform worst, acting like an "insurance policy" within a diversified portfolio.
Silver and platinum possess similar attributes but lack the same depth of historical value preservation. Silver prices are more driven by industrial demand and thus more volatile; platinum is constrained by its scarcity and specific industrial applications. In terms of core wealth preservation, neither matches gold’s universal acceptance and stability.
Inflation-protected bonds are decent hedges under normal conditions (depending on real interest rates), but they remain debt obligations at their core. In the event of a major debt crisis, their performance entirely depends on the issuing government’s creditworthiness. Historically, during high-inflation periods, governments often manipulate inflation data to reduce actual repayment costs. Therefore, during systemic financial crises, they cannot provide the same level of security as gold.
As for high-growth stocks such as AI, while they offer significant upside potential, their historical performance during severe inflation and economic distress has indeed been disappointing.
Gold offers irreplaceable diversification value and should occupy a place in most investment portfolios. But with gold prices already high, is holding it still wise?
How Much Gold Should Be in a Portfolio?
Historical data shows that due to gold’s negative correlation with stocks and bonds (especially during equity-bond drawdowns), a roughly 15% allocation provides the optimal risk-return ratio. However, this optimized portfolio comes at the cost of lower long-term expected returns.
My personal approach is to treat gold holdings as an overlay to the portfolio or to apply moderate leverage to the overall portfolio, thereby maintaining an optimized risk-return profile without sacrificing expected returns. This is my constructive recommendation for most investors’ gold allocation.
As for tactical timing, that is another complex topic, which I generally do not recommend for ordinary investors.
How Has the Rise of Gold ETFs Affected Gold Price Trends?
The price of any asset equals total buyer funds divided by seller supply. Gold ETFs have indeed enhanced market liquidity and transparency while lowering participation barriers. However, it must be clarified that the gold ETF market remains far smaller than the physical gold market and central bank holdings, and is not the primary driver behind the current rise in gold prices.
Is Gold Replacing U.S. Treasuries as the New "Risk-Free Asset"?
The answer is yes. Across numerous central banks and institutional investors, gold is systematically replacing U.S. Treasury bonds as the risk-free asset. Investors with historical perspective understand that compared to any fiat currency debt, gold is the more fundamental risk-free asset.
Gold is currently the second-largest reserve currency among central banks, with a historical risk profile far lower than all government debt. Debt assets are essentially promises to repay, and when debt levels become excessive, history shows governments have only two options: default or devalue. Since 1750, 80% of fiat currencies have disappeared, and the remaining 20% have all significantly depreciated.
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